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Cite as: [2004] ScotCS 137
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OCRA (Isle Of Man) Ltd v. Business Computer Technology Ltd [2004] ScotCS 137 (09 June 2004)
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OUTER HOUSE, COURT OF SESSION |
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CA99/02
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OPINION OF LORD EASSIE in the cause OCRA (ISLE OF MAN) LIMITED Pursuers; against BUSINESS COMPUTER TECHNOLOGY LIMITED Defenders:
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Pursuers: Swanson, Solicitor-Advocate; Maclay Murray & Spens
Defenders: Sandison; Boyds
9 June 2004
[1] These proceedings were formerly directed against two defenders whom the pursuers sought to hold jointly and severally liable in damages. Following a debate the action was dismissed insofar as it was directed against the then first defenders, Anite Scotland Limited. The pursuers thereafter amended their pleadings against the remaining defenders - Business Computer Technology Limited ("BCT") - with a view to meeting criticisms which had been advanced by counsel for the defenders at that debate and which the solicitor for the pursuers, who appeared in exercise of her extended audience rights, recognised as requiring to be addressed. The present defenders sought and were granted a further debate on the amended pleadings. In the week preceding the diet of debate the pursuers presented a further Minute of Amendment and sought discharge of the diet in order to allow the Minute of Amendment to be answered. The motion to discharge the diet of debate was refused and the debate proceeded on the basis that consideration be given to whether any of the points argued by the defenders would be satisfactorily answered were the pleadings to be altered in terms of the Minute of Amendment.[2] The defenders - BCT - are, or at least were, suppliers of computer software and IT consultancy services and the claim advanced by the pursuers is for damages for losses averred to have been sustained by reason of breach of contract and also delictual duty on the part of the present defenders.
[3] As recorded in the Opinion delivered on 17 October 2003 following the earlier debate, the pursuers aver the existence of a number of earlier contracts with BCT, which were satisfactorily performed, but the contract said to be breached is governed by a Client Service Agreement No. 990301 concluded on 15 March 1999 (No. 6/2 of process). The Client Service Agreement essentially sets out the general terms and conditions upon which BCT may perform services. Thus clause 1.1, headed "Services to be Performed", provides that -
"Subject to the terms and conditions of this agreement BCT shall perform such services and carry out such work ('Services') for the Client as are expressly agreed in writing between BCT and the Client. Each Service performed shall be deemed to be performed or carried out under a separate contract."
It appears that following the conclusion of the Client Service Agreement BCT provided a Detailed Design Report dated 21 April 1999 (No. 6/3 of process) which was then followed by a proposal regarding a Management Information Service ("MIS") dated 24 May 1999, that being in turn succeeded by the Specialisation Letter dated 19 June 1999 (No. 6/6 of process). The services to be performed by BCT are set out in paragraph 2 of the letter which contains eight sub-paragraphs. Sub-paragraphs (1) and (2) of that paragraph are in these terms:
"2.1 BCT will document the functional specification for a new Management Information System (WMIS) to the requirements as agreed by the steering group and broadly in line with the Detailed Design Report.
2.2 BCT will develop the Management Information system to the agreed specifications."
It appears that the steering group ceased to meet in September 1999 without agreement having been reached on the specification for the MIS. The pursuers aver that it ceased to meet at the suggestion of BCT on the basis that its "functions could thereafter be more effectively performed by smaller focus groups and by the second defenders reporting directly to key members of the pursuers' staff". (Article 5 of condescendence in fine). Although it appears that services were provided by BCT there is, however, no averment of any specification agreed by the steering group or those successor groups or individuals.
[4] The pursuers aver, also in Article 5, that the defenders proposed that a modular development approach would be adopted. Under that approach the defenders "would divide the system into discrete modules that could be developed to a functionally complete state, tested and then released independently of each other" and that they would begin by developing those modules which were of key importance. Although the pursuers' pleadings discuss, in greater or lesser detail, some eleven of the modules envisaged in the Detailed Design Report they now aver that, as a result of delay to the envisaged timescale, it was agreed between the parties, as a variation to the contract, that work on certain modules would be deferred or dropped altogether. Those dropped or deferred included the Commercial Module (Article 12 of the Condescendence); the Filing Module (Article 16); the Management Module (Article 17); the Intergroup Module (Article 18) and the Trusts Module (Article 13). The position respecting the module entitled "Professional Directors Module" is unclear, since paragraph 5 of the Minute of Amendment includes it as being "dropped" whereas elsewhere a contrary view is indicated in the pursuers' proposed pleadings. Mrs Swanson, for the pursuers, stated that the contrary approach was that adopted by the pursuers. In the event, however, no speciality arises respecting this module and its inclusion in the modules which were neither dropped nor deferred did not affect the general argument advanced by Mr Sandison on the defenders' behalf.[5] It is convenient to note at the outset that in the present case it is not in dispute that the work of developing even those modules which were not deferred or dropped but remained in the project was not regarded by either party as having been completed prior to the ending of their business relationship. The defenders maintain that they were unable to complete their work because the pursuers had failed to supply information and to do what was otherwise necessary on the pursuers' part to enable the defenders to complete the project. By letter of 6 June 2001 Anite, who had purchased the defenders' business in April 2001 called upon the pursuers to allow completion. For their part the pursuers, having averred that the defenders are in breach of contract, go on, in Article 21 of Condescendence, to aver that in May 2001 the pursuers accepted the defenders' breach as repudiation of the contract and intimated that the contract was at an end. As recorded in greater detail later in this Opinion, the pursuers' solicitor agreed, in the course of her submissions that the work was not completed.
[6] Article 21 of Condescendence contains the essential averments respecting the nature of the defenders' alleged breaches of contract. In endeavouring the analyse those averments Mr Sandison for the defenders observed that the breaches appeared to fall into two categories, namely (i) a complaint of deficiency in the quality of the services in fact provided and (ii) a complaint of a failure to make a timeous performance. I did not understand the solicitor-advocate for the pursuers to demur to that analysis.
[7] The essential averment respecting the first complaint - deficiency in quality - is interposed in averments respecting the second complaint. The averment is at p. 47A of the Record and is in these terms:-
"The Defenders failed to deliver a Management Information System which was broadly in line with the Detailed Design Report. The Defenders are in breach of contract."
The complaint that what was delivered was not "broadly in line" with the Detailed Design Report is repeated elsewhere as respects individual modules and is accompanied by averments of a "failure to deliver any functions" and a "failure to deliver functionality which was broadly in line with the Detailed Design Report". Mr Sandison criticised the absence of clarity in this formulation. It was, he said, unclear whether the pleader intended that nothing whatever was presented to the pursuers or that a programme or function was provided which did not work.
[8] Counsel for the defenders further advanced a more fundamental submission that any case based upon an alleged failure to "deliver functionality broadly in line with the Detailed Design Report" was irrelevant. There was no suggestion in the pleadings that the defenders had ever represented to the pursuers that they had completed work on any module, which the pursuers would then require to accept or reject. The contract envisaged something other than an ordinary contract of sale involving simple delivery of an article which the customer might accept or reject. As was evident from Clause 1.10 of the Client Services Agreement, there was to be a process of developing software followed by testing and eventual agreement that completion of the development to the customer's satisfaction had been achieved. There was no averment that the process had proceeded to such completion. So, the complaints about failure to deliver "functionality" were not truly complaints of defective quality but of failure to achieve the intended result by an appropriate time.[9] Before summarising the response advanced by the pursuers' solicitor it is convenient to set out the terms of Clause 1.10 of the Client's Services Agreement:-
"Programs, test results and advice must be agreed by the Client to be completed and must be accepted by the Client before they are used by the Client. They shall be deemed to be complete and accepted by the Client either if they are used or two weeks after submission or resubmission unless the Client gives written notice of non-acceptance specifying the reason for non-acceptance within the two weeks. BCT will correct errors in programs, final test results, reports and advice within a reasonable time. If notified by the Client within the period of two weeks commencing with the submission or re-submission thereof in which the error first occurs, correction will be made free of charge. Correction of errors not so notified or not notified until after the programs, test results, reports or advice had been used by the Client will be charged for as extra work as provided in Clause 1.7."
In regard to this Clause, Mrs Swanson made plain in her submissions that the pursuers' contention was that the programs were never used, since, she said, they were unusable. She stressed that the pursuers' position was that the work had never advanced to the stage at which Clause 1.10 ever came into play. She pointed out that development work was continuing until at least April 2001. So, said Mrs Swanson, testing and acceptance never required to be considered because the work had not advanced to that stage. The pursuers' pleadings had to be read in that sense. As regards explanation of precisely what was meant by the averment of a failure to "deliver functionality broadly in line with the Detailed Design Report", the solicitor for the pursuers largely contented herself with a reiteration of the same, or similar phraseology. She referred to Ernest Beck & Company v K. Szymanowski & Company [1924] AC 43 in which a contractual term deeming delivered goods to be in accordance with the contract unless notice of disconformity were sent within a stipulated period of time was held to relate to the quality of the delivered goods only, and not to a shortfall in the delivered quantity. From her citation of the case as apposite to the circumstances of the present case one could infer, consistently with such clarification as was offered, that the pursuers' complaint is of a failure to provide particular features rather than a provision of features which did not function satisfactorily.
[10] However, given the confirmation by the pursuers' solicitor that it was not suggested by the pursuers that any of the modules had been completed - or represented by the defenders to have been completed - prior to the ending of the parties' relationship I consider that counsel for the defenders is correct in saying that a claim couched qualitatively in terms of the deficient nature of what was incompletely provided is incorrectly conceived and that the true complaint should be of failure diligently to complete the work within whatever contractual timescale may be provided. By analogy, if a builder fails to complete a house within the stipulated period of time and is on that account dismissed, the complaint is simply that he failed timeously to complete the building, not that he delivered a defective building by want of its incompletion. In the event of such a failure being established there may no doubt arise a claim for the additional cost of completing the work and possibly for losses consequential on the delay in completing the work. But approaching matters on that basis involves a consideration of the time stipulated for completion and whether completion was not achieved timeously and to that issue one must now turn.[11] The contractual term dealing with time for performance is Clause 1.8 of the Client Services Agreement. It reads thus:-
"BCT will endeavour to adhere to the timetable agreed with the Client. If no timetable is agreed, BCT will endeavour to perform each Specific Service within a reasonable time. All dates and timetables are business estimates only and do not give rise to any contractual obligations on the part of BCT."
Counsel for the defenders submitted that the term "Specific Service" referred to the particular services provided under the specialisation letter and I did not understand the pursuers' solicitor to disagree. It may also be noted that Clause 1.18.4 of the Client Services Agreement excludes (to the extent permissible by law) all implied contractual conditions. Further, in their pleadings (Article 21 of Condescendence) the pursuers state expressly that they do not contend for any implied term of contract in these proceedings.
[12] While various time estimates appear to have been given in the course of the development work, it is not suggested by the pursuers that there was any agreement on any development timetable. Having narrated, in Article 21 of Condescendence, the absence of any such agreed timetable, the pursuers then go on to aver that the defenders were "nevertheless obliged to perform each specific service within a reasonable time". The Minute of Amendment makes plain that this averment is based on the terms of Clause 1.8 of the Client Services Agreement and in her submissions the pursuers' solicitor contended that such was the correct construction of that Clause.[13] Counsel for the defenders submitted however that the averment of an obligation to perform each service within a reasonable time involved a misreading of the clause. The obligation which the defenders undertook was simply "to endeavour" to perform within a reasonable time. For her part, Mrs Swanson submitted in response that to give effect to the word "endeavour", as respects a reasonable time, would not be a fair construction of the contract because, she said, the defenders could go on trying "for ever" and there would be no clear obligation on the defenders.
[14] I am unable to accept the argument advanced on this point by the pursuers' solicitor. She accepted that as respects the first branch of Clause 1.8 - the agreed timetable - the word "endeavour" had to be given its normal meaning and that there was no unqualified obligation to perform in accordance with that timetable. Having regard to the terms of the clause, I think that acceptance could not properly have been withheld. But that having been accepted, I am unable to see any good reason wherefor the word "endeavour", used meaningfully and with effect in the first sentence of the clause, should be disregarded in the succeeding sentence, as Mrs Swanson's submission necessarily required. The clause is no doubt one which may be seen as benevolent to the defenders but it is not suggested by the pursuers that it is invalid. Nor, in my view, is the clause so open-ended as the pursuers' solicitor suggested. As counsel for the defenders pointed out, a procedure exists whereby time for performance left immaterial or inessential by the original contract terms may be made material or essential - namely by the giving of a reasonable ultimatum. Counsel for the defenders again cited Charles Rickards Ltd v Oppenhaim [1950] 1 KB 616, to which he had referred when making the same observation at the earlier debate. The general availability of that procedure was recognised in the observations of the Lord President (Hope) in Visionhire Limited v Britel Fund Trustees Limited 1991 SLT 883, at 890A-B, to the effect that the ultimatum procedure is generally available in all those cases where there is a provision in the contract about time which is not of the essence but which one of the parties to the contract wishes to be made of the essence for the purposes of the contract. I did not understand the pursuers' solicitor to take issue with this branch of counsel's argument and no submissions were made by her respecting the authorities to which counsel had referred.
[15] Within the Minute of Amendment proposed by the pursuers is now to be found an attempt at an alternative approach. The Minute of Amendment (paragraphs 9 and 10) seeks to preface the averments of a breach of the contended obligation of delivery within a reasonable time with these additional averments:-
(Para 9).
"The Defenders' failure to complete any of the proposed modules to a standard broadly in line with the Detailed Design Report within 10 months of the estimated completion date evidences a failure to endeavour to adhere to the estimated timescale." and
(Para 10)
"The Defenders' failure to complete the reduced contract to a standard broadly in line with the Detailed Design Report within 17 months of the estimated completion date evidences a failure to endeavour to adhere to the estimated timescale."
It is not clear from the proposed pleadings, nor indeed the oral submission for the pursuers, whether a separate claim of breach of an obligation to endeavour to complete within a reasonable time is being advanced and if so, with what consequence for the measure of damages. It may also be noted that the averments which have just been quoted relate to an alleged failure to endeavour to adhere to an estimated completion date, rather than a reasonable time. However, counsel for the defenders did not place much weight on those particular criticisms but more broadly submitted that the averments in issue conflated failure and endeavour and were thus logically flawed. Because someone failed to achieve a result did not mean that the person was not making any effort or endeavour. Insofar as there might be an alternative approach on the part of the pursuers, these averments were irrelevant. In her response Mrs Swanson submitted simply that a failure to achieve a result might infer lack of endeavour. She referred to the brief digest of the decision in Green v Gill published in [1999] GWD 32-1508, which indicated that a wide discrepancy between the value of an asset and the price obtained might infer a failure by the seller to endeavour to obtain the best price obtainable.
[16] The factual context, briefly reported in Green's Weekly Digest, and the nature of the issue in Green v Gill were very different from the present case and I do not regard that case as of much assistance. In my view there is force in Mr Sandison's submission that, of itself, a failure to achieve a result does not demonstrate that no effort was made to achieve that result. Regard must be had to what is additionally averred such as, in the context of an allegation of failure to make any effort to complete within a reasonable time, possible averments of refusal without cause to attend at the relevant site or protracted periods of unjustified inactivity. However, in the present case such clear averments are lacking. On the contrary, as the pursuers' solicitor pointed out elsewhere in her submissions, in a different branch of the argument, work was continuing for a long period and indeed was continuing until at least April 2001, shortly before the pursuers terminated the relationship. (A perusal of the documentary productions lodged by the pursuers indicates such ongoing work and communication). Against that background I think it illegitimate to infer from the mere failure to meet a date now said by the pursuers to be a reasonable one for completion that there was want of any endeavour on the part of the defenders to complete performance in a reasonable time. Indeed, it may be noted that the pursuers do not actually aver, or propose to aver, that the defenders made no endeavour to perform within the averred reasonable time. Endeavour which was insufficient to produce the result would not amount to a breach of the term. The difficulties in formulating a relevant case for breach for Clause 1.8 (where no attempt has been made to adopt a procedure for making time essential) are manifest. I agree with counsel for the defenders that they have not been properly addressed by the pursuers. [17] In addition to the case pled as breach of contract the pursuers seek to make a case in delict. The latest formulation of that case is within the proposed Minute of Amendment and is as follows:-
"The Defenders are specialist designers of business software. The Defenders owed a duty to the pursuers to exercise the knowledge and skill of normally skilled and competent software designers and to take such care and reasonable precautions against harm as a normally skilled and competent software designer would take. The Defenders had a duty to ensure that the software system supplied by them conformed to the specification agreed by the parties in the contract as hereinbefore condescended upon. The Defenders had a duty to ensure that they complied with the reasonable timetable agreed by the parties in the contract as hereinbefore condescended upon. In these duties the Defenders failed as hereinbefore condescended upon."
"If a manufacturer negligently puts into circulation a chattel containing a latent defect which renders it dangerous to persons or property, the manufacturer, on the well-known principles established by Donoghue v Stevenson [1932] AC 562, will be liable in tort for injury to persons or damage to property which the chattel causes. But if a manufacturer produces and sells a chattel which is merely defective in quality, even to the extent that it is valueless for the purpose for which it is intended, the manufacturer's liability at common law arises only under and by reference to the terms of any contract to which he is a party in relation to the chattel;..."
[20] As respects the second specific delictual duty for which the pursuers now contend, viz the duty on the defenders "to ensure" that they "complied with the reasonable timetable agreed by the parties in the contract", counsel for the defenders submitted that the law would not recognise a delictual duty owed to the other contracting party which was inconsistent with the contractual terms. Counsel referred to Tai Hing Cotton Mill Limited v Liu Chong Hing Bank Limited [1986] AC 80 and particularly the speech of Lord Scarman at 107. Counsel further referred to Henderson v Merrett Syndicate Limited [1995] 2 AC 145 and in particular the speech of Lord Goff at 184 ff. In the present case, said counsel, what was claimed by the pursuers as a delictual duty as respects time of performance was clearly inconsistent with the contractual provisions.
[21] For her part, the pursuers' solicitor again did not take exception to the exposition of the law announced by counsel for the defenders. She simply submitted that the proposed delictual duty was no greater than that imposed by contract. However, in my view that submission presents an obvious difficulty. Not only does the proposed delictual duty encompass an obligation "to ensure" but it also makes reference to an agreed contractual timetable. But there is no averment of an agreed contractual timetable. Indeed, the pursuers' averments (Article 21 of Condescendence, Closed Record 46C-D) say "No detailed development timetable was agreed between the parties". The delictual duty contended for is thus inconsistent with the contractual provisions. In the event the pursuers' solicitor largely, though not expressly, conceded the irrelevancy of the delictual case.
[22] For these reasons I agree with the submission of counsel for the defenders that the delictual case, both in its existing and proposed version, is irrelevant. I have to record some concern that notwithstanding the criticisms and the argument advanced on behalf of the defenders regarding the delictual case at the first debate the pursuers, having brought this action as a commercial cause, should persist in attempting to plead such case only (at the third attempt at its formulation) to recognise its irrelevancy.
[23] Counsel for the defenders further submitted that, irrespective of the want of relevancy in the pleadings respecting both the case pled in contract and the case pled in delict, the action had to be dismissed by reason of its having been brought outwith the limitation period contractually stipulated in Clause 1.18.8 of the Client Services Agreement. That Clause of the Agreement reads as follows:-
"No action (whether in contract or otherwise, whether based upon the negligence of BCT, its employees or agents or not and irrespective of the form and forum) arising out of this agreement or in connection with the Services supplied or to be supplied or the work carried out or to be carried out here under (other than an action by BCT to recover sums due under invoices rendered by BCT to the client) may be brought by either party more than 12 months after the party concerned becomes aware of the facts constituting the cause of action or could with the exercise of reasonable diligence have become aware of those facts."
So far as the procedural history of this action is concerned, it was raised against the original defenders - Anite Scotland Limited - in May 2002. The current defenders - BCT - were only convened as defenders in September 2002.
[24] In submitting that, on any view, the pursuers' claim was time barred as against the current defenders counsel adverted to the circumstances disclosed in the pursuers' pleadings relating to the time at which the pursuers were aware of the facts constituting the cause of action or could with reasonable diligence have become aware of those facts. He pointed out that, insofar as the pursuers' averments of breach of contract might be seen as an allegation of a failure qualitatively to provide systems which worked, various possible dates for the emergence of such a functional failure might be noted from the pursuers' pleadings but on any view the last of those dates was the "Helsinki" test in February 2001. (Art. 8 of Condescendence). Insofar as the action might be seen as a complaint of a failure to provide a completed system on time, counsel pointed to the averment in the Minute of Amendment (paragraph 9) to the effect that a reasonable time for completion would have been three to five months after the "estimated period" which, from Condescendence 21, was November 1999 thereby giving a completion date, at the latest, of April 2000. Accordingly, on their own averment, the pursuers had a cause of action in April 2000 but neglected to take any proceedings until May two years later, when they sued Anite Scotland Limited but not the current defenders.[25] The pursuers do not question the validity of Clause 1.18.8. Nor do they aver that they were unaware and could not with reasonable diligence have become aware of facts constituting a cause of action until a date less than one year before the defenders - BCT - were convened as defenders in the action. In responding to counsel's submissions on this branch of the argument the pursuers' solicitor adverted to the averments that development work on the project was continuing until April 2001. As I understood it her contention was that, notwithstanding the fact that the pursuers proposed to aver that a reasonable time for completion of the project would have elapsed a year earlier, in April 2000, the continuing work by the defenders on the project during the year thereafter somehow masked the fact that a reasonable time had elapsed or somehow excused the pursuers from not acting promptly. I do not think it follows from the fact that the pursuers permitted the defenders to continue working until April 2001 that they were unaware that (as is now proposed as an averment) a reasonable time for delivery had elapsed a year previously, and, as already mentioned, it is not averred by the pursuers that they were lacking knowledge of the passing of a reasonable time for delivery.
[26] However, even if absence of knowledge that a reasonable time for performance had already passed may be inferred from the fact that the pursuers allowed the defenders to continue working on the project until April 2001, that is not a complete answer to the limitation point since such an inferred lack of knowledge could not persist after May 2001 when the pursuers aver that they terminated the contract with the defenders, BCT. But, as already indicated, the action was only raised against the present defenders in September 2002. So the pursuers have the difficulty that they did not sue BCT within a year of their averred acceptance of the defenders' breach of contract and intimation that the contract was at an end. In her endeavour to answer this difficulty the pursuers' solicitor sought to invoke what she termed "the relationship with Anite" and submitted that the relationship "could not be ignored". However, Mrs Swanson was unable to explain further how that relationship - more fully described and discussed in the earlier opinion of 17 October 2003 - could result in BCT having been validly convened as defenders in May 2002. Some reference was made by Mrs Swanson to Anite Scotland Ltd being possible agents of BCT by virtue of the letter of 6 June 2001 which they wrote offering to complete the project on behalf of BCT. (The exact terms of the letter are set out in the earlier opinion). That offer was never accepted but in any event there was never any question of Anite acting as agent for an undisclosed principal. The pursuers' solicitor suggested that service of proceedings upon an agent might be sufficient. Service may no doubt be accepted by an agent for a defender. However that is different from convening an agent as the representative defender of his principal. No authority was offered for the competency of suing a principal by convening his agent as the defender. Further, Anite Scotland Ltd were not sued in a representative capacity but as a principal (and sole) obligant.
[27] Put shortly I therefore do not consider that any good answer has been provided - or indeed could be provided - to the defenders' submission that these proceedings are precluded by reason of their being raised outwith the time limit stipulated in the contract. Accordingly the action must on any view be dismissed on that account, irrespective of the view which I have reached respecting the relevancy of the pursuers' pleadings in the other respects canvassed in the debate.
[28] I would add that counsel for the defenders had further points respecting the relevancy of certain averments of loss and the internal consistency of those averments. He intimated that the main objection indicated in the defenders' Note of Argument would be largely met by the proposed Minute of Amendment and that he was content that as respects that matter a proof before answer was appropriate. As respects the other points raised by counsel, had I been persuaded that the substantive merits were not contractually time-barred and otherwise warranted inquiry by way of proof before answer I would have allowed a similar inquiry into all the averments of quantum even though the pursuers' solicitor conceded that there might be some doubt about an element of double counting as respects the purchase of the "Goldmine" system.
[29] In these circumstances I shall sustain the defenders' second plea-in-law and dismiss the principal action. I shall put the case out By Order for consideration of further procedure in the counter-claim, which was not discussed in the debate.